The Consolidated Appropriations Act of 2021 (CAA), signed into law by President Trump on December 27, 2020, included extenders to extend tax provisions related to various energy credits. One of the extended credits is the business energy credit under Internal Revenue Code Section 48(a) for solar property. Credits for solar property are commonly seen in connection with the construction and rehabilitation of low-income housing tax credit (LIHTC) projects and the credits will have a bearing on the investor’s amount of investment in a LIHTC project.
The CAA provided favorable changes to the business credit for solar property. Prior to the enactment of CAA, the business credit for solar property was due to be phased out over a number of years with the credit completely phased out for solar property construction that began after December 31, 2021. With CAA, the solar credit is still scheduled to be phased out, but the phase-out period is being extended to cover a longer period. With the changes provided by CAA, the business credit for solar property is available for solar property construction beginning before January 1, 2024.
The Following is the Solar Credit Phase-Out Schedule After Enactment of CAA
The energy credit percentages are as follows:
- 30% credit for property in which construction begins before Jan. 1, 2020 and that is placed in service before Jan. 1, 2024;
- 26% credit for property in which construction begins after 2019 and before 2023 and that is placed in service before 2026; and
- 22% credit for property in which construction begins after 2022 and before 2024 and that is placed in service before 2026.
The credit rate is determined by the year in which construction begins for the energy property as well as the year in which the energy property is placed in service.
For Comparative Purposes, the Following is the Phase-Out Schedule Before Enactment of CAA
The energy credit percentages were as follows:
- 30% credit for property in which construction begins before Jan. 1, 2020 and that is placed in service before Jan. 1, 2024;
- 26% credit for property in which construction begins in 2020 and that is placed in service before Jan. 1, 2024;
- 22% credit for property in which construction begins in 2021 and that is placed in service before Jan. 1, 2024; and
- 10% credit for property in which construction begins before Jan. 1, 2022 and that is placed in service after Dec. 31, 2023.
If you have any questions about the solar credit phase-out schedule or CAA, please contact us at info@lvhj.com or your engagement lead member directly.